Hi all,
I am running both a random-effects model and a fixed-effect model, to see whether a firm's ESG score has an effect on return.
xtreg Return ESGscore Mktrf SMB HML CMA RMW i.sector i.month, re cluster(firm ID)
xtreg Return ESGscore Mktrf SMB HML CMA RMW i.sector i.month, fe cluster(firm ID)
My question is, how do I interpret the coefficient for the ESG score? I found this explanation for the random effect coefficient "Interpretation of the coefficients is tricky since they include both the within-entity and between-entity effects. In the case of TSCS data represents the average effect of X over Y when X changes across time and between individuals by one unit." If the coefficient is then -0.5, is the interpretation then, that 1-point increase in ESG score is associated with a -0.5% decrease in return on average?
And for the fixed effects I found this "Coefficients of the regressors indicate how much Y changes when X increases by one unit" - So would that be interpreted as a 1-point increase in ESG score is associated with a 0.5% decrease in return?
Thanks,
Karoline
I am running both a random-effects model and a fixed-effect model, to see whether a firm's ESG score has an effect on return.
xtreg Return ESGscore Mktrf SMB HML CMA RMW i.sector i.month, re cluster(firm ID)
xtreg Return ESGscore Mktrf SMB HML CMA RMW i.sector i.month, fe cluster(firm ID)
My question is, how do I interpret the coefficient for the ESG score? I found this explanation for the random effect coefficient "Interpretation of the coefficients is tricky since they include both the within-entity and between-entity effects. In the case of TSCS data represents the average effect of X over Y when X changes across time and between individuals by one unit." If the coefficient is then -0.5, is the interpretation then, that 1-point increase in ESG score is associated with a -0.5% decrease in return on average?
And for the fixed effects I found this "Coefficients of the regressors indicate how much Y changes when X increases by one unit" - So would that be interpreted as a 1-point increase in ESG score is associated with a 0.5% decrease in return?
Thanks,
Karoline
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